The Vatican has frozen funds belonging to a senior cleric at the centre of a suspected money smuggling operation.

Monsignor Nunzio Scarano, who has close links to the Vatican Bank, was arrested last month, accused of plotting to bring millions of euro in cash into Italy from Switzerland for rich friends.

The Vatican's chief judicial official had ordered the freezing of Msgr Scarano's own funds in the Vatican Bank.

"The inquiries may also be extended to other persons," it said, without giving details.

The bank, known formally as the Institute for Works of Religion (IOR), had appointed US financial consultancy Promontory Financial Group to conduct a review of all accounts potentially affected, and was cooperating with the investigation, the statement added.

Msgr Scarano, a former senior accountant in the Holy See's financial administration, was arrested with Giovanni Zito, an Italian secret service agent, and financial broker Giovanni Carenzio.

They have been accused of plotting to bring in €20 million for Msgr Scarano's rich friends in the shipping industry in the southern city of Salerno.

Although the Vatican bank has not been directly implicated in the case, it is already caught up in a separate investigation into suspected money laundering.

Msgr Scarano, currently held in Rome's Queen of Heaven jail, is also under investigation in another case linked to his accounts in the Vatican bank.

Two of IOR's top managers resigned earlier this month in the wake of Msgr Scarano's arrest and prosecutors are considering seeking to have the two, former director Paolo Cipriani and former deputy director Massimo Tulli, sent to trial.